Inflation-busting pay rises are off the agenda at all but 3% of Britain's companies, while almost one in six are still imposing a pay freeze, according to a study for the CBI.

The employers' group and recruiters Harvey Nash reported that most staff will receive pay rises well below the rate of inflation this year, while 16% face a freeze, some for the second year running.

A survey of 666 companies found that firms were starting to hire staff again as they recovered from the recession, but pay restraint was still the norm across industry.

Most of those questioned said the UK's flexible labour market helped to stem job losses, although many had frozen recruitment and pay to help cope with the economic downturn.

The research showed that where bosses were open about company finances and the effects of the recession, staff understood the need to change working patterns and showed a flexible attitude.

Employers said strong employee engagement was an important factor and seven out of 10 firms believe it will play an important role in the recovery.

John Cridland, the CBI's deputy director general, said: "Employers have come out the other side of the recession, having managed to keep many more people in jobs than had been expected. This has been largely down to the flexibility and goodwill of staff who quickly adapted to emergency measures, including pay and recruitment freezes. Good communication played a key role in helping employees understand the changes needed to safeguard jobs."

Just one in 20 firms had kept a freeze on recruitment in place, compared with more than a third six months ago.

Cridland added: "Although there are some signs that job prospects are improving, a good number of businesses are still operating a pay freeze. Those that can afford it are planning modest or targeted pay rises."

Albert Ellis, chief executive of Harvey Nash, added: "We are seeing the first indications that businesses are gearing up for a return to growth and this trend is most concentrated in the technology and financial services sectors and some areas of manufacturing. Although the recovery is fragile, there is a sense that the UK economy as a whole has turned a corner.

"Our experience, particularly in northern Europe, suggests that the UK is one of the first to reflect this upturn. The UK has one of Europe's most flexible labour markets and without doubt this will play a major part in the recovery.

"For the public sector the outlook is far less certain and we await details of the government's spending reduction plan."